Micron Technology Goes on Breakout Watch

Key Points

• Micron Technology Inc. moves up on mixed results and a larger than expected write-down. 
• The write-down is suitable for inventory and has the analysts upping their targets. 
• Long-term trends favor Micron Technology. 

Micron Technology Inc. NASDAQ: MU moves higher on solid results and has the analysts doubling down on their outlook. The Q2 results were a bit of a surprise but show that the bottom in the memory chip market is close and that the long-term outlook remains favorable. This means upward revisions to price action with the stock moving up within a consolidation range and on track to break out to new highs.

This is noteworthy for two reasons: the move is consistent with bottoming across the semiconductor industry NYSEARCA: SOXX, and a breakout is a technically bullish move that can attract new buyers to a market and turn old bears into bulls. 

Micron Rises on Mixed Quarter 

Micron had a rough quarter, with revenue slightly below forecasts and earnings deep in negative territory. The revenue fell more than 50% to $3.69 billion, only two cents less than the Marketbeat.com consensus expected. The decline is due to deep pullbacks in all segments due primarily to oversupply within the industry. This was expected, as was the inventory write-down that cut into its bottom line, but the write-down was more significant than the consensus. The company wrote off $1.43 billion in inventory worth $1.34 in non-cash impairments. The analysts were expecting closer to $1 billion but view the move as favorable to inventory and positioning for the future. 

J.P. Morgan analyst Harlan Sur reiterated an "overweight" rating while raising the price target by $10 to $75. He noted that the company has made "good progress" on excess inventory but still has more work. Sur said the team has started to see some light at the end of the tunnel with inventory levels continually improving across a broad set of end markets.

The guidance is more of the same. Revenue is expected in line with the consensus figures, but the projected loss is more significant than the forecast. The upshot is that inventory should clear quickly and set the company up for profitable business later in the year. The shift to artificial intelligence (AI) is good for the memory and data center business that Micron depends on. Regarding the analysts, the consensus is a "moderate buy" with a price target firming in the near term. The most recent targets have the stock trading above the average of $68, enough to get it out of the current range. 

Are More Write-Downs Coming for Micron? 

Micron’s actions can be viewed as taking the bull by the horns, but more write-downs could be needed. The company reduced its inventory value sequentially, but the decline is negligible given the 22% year-over-year (YOY) increase. Some of the build-ups are in the newer, next-gen technologies in demand, but much of this figure is in older stock. Investors should not be surprised if next quarter’s write-downs are more significant than guidance is forecasting. 

The chart action is favorable. Micron stock is increasing in premarket action and confirming support at the 150-day moving average. This bullish indication of market support could lead to a retest of the $65 level. The $65 level is a critical resistance point and the top of the trading range; if the market can not get above it, it will remain range bound. If the market breaks out, this stock could quickly move up to the $70 level and up to the $80 region.